Wednesday January 12, 2011
By DANNY YAP
The Star (Malaysia)
KUALA LUMPUR: Top Glove Corp Bhd, the world's largest rubber glove manufacturer, is investing RM160mil in Cambodia to plant rubber trees to reduce its dependency on latex which is bought at market prices.
Chairman Tan Sri Lim Wee Chai said the company was targetting to obtain 20% of its latex requirement from the plantation over time.
“We have about 8,000 ha of net plantable land for rubber trees,” he said at a briefing for analysts and reporters on Top Glove's first quarter results ended Nov 30, 2010 here yesterday.
By owning its own rubber plantation, Top Glove would be able to mitigate the rising cost of buying latex at market prices in future.
Tan Sri Lim Wee Chai (right) says the company is targeting to obtain 20% of its latex requirement from the plantation. On his right is managing director Lee Kim Meow.
“We had to revise our rubber glove prices several times in the last quarter due to the volatility of latex prices,” he said.
The average latex prices rose by 57% from RM4.58 per kg in the first quarter of 2010 to about RM7.20 per kg currently.
Lim said about 80% of the company's profit was still in manufacturing latex glove.
Top Glove would focus more on producing nitrile gloves as they command better margins and were not subjected to the volatility in latex prices.
In its first quarter ended Nov 30, 2010, the group's production mix for nitrile was 7%, while its nitrile production for December last year stood at 10%.
“We have a large number of nitrile raw material manufacturers in Malaysia, so we have better cost advantages over China in terms of raw materials and labour,” he said.
“Because of the higher prices of latex glove, customers have kept their inventory levels at a minimum level,” he said.
For the first quarter ended Nov 30, Top Glove posted a 44.6% drop in net profit to RM36mil compared with RM65mil in the corresponding quarter a year earlier.
Revenue stood at RM491.5mil against RM472.3mil previously.
Lim said the company had exceptional sales up till the third quarter of last year, due to concerns of A(HINI) and other factors.
“This year will be challenging but we hope to do better than the previous financial year,” he said.
He added that the company was planning to size up by acquiring smaller rubber plants to improve on its economies of scale and synergy.
Lim said the company had RM343mil in cash reserves to undertake such acquisition activities.
“We are in talks with several parties and hope to secure a deal before year end or earlier,” he said, adding that timing of the acquisition was important.
Lim pointed out that this adverse situation of higher latex prices would possibly lead to further consolidation among the industry players,
“We are in a good position to further enlarge our business when opportunities arise,” he noted.
Top Glove currently has 14 plants in Malaysia, four in Thailand, and two in China, with a total capacity of 33 billion pieces of glove per annum, which is nearly one fifth of the world's demand.
